The Bank of England (BoE) has published the scenario that it will be using for the 2022 annual cyclical scenario (ACS) stress test of the UK banking system.
The exercise subjects the major UK banks to hypothetical deep simultaneous recessions in both the domestic and global economies, large falls in asset prices and higher global interest rates, and a separate stress of misconduct costs.
The scenario tests banks against GDP falling by 5% over 12 months, inflation peaking at 17% before falling to 11% over the next three years and unemployment standing at 8.5%.
It also factors in house prices dropping by a third (31%) and interest rates peaking at 6% in 2023.
The eight participating banks and building societies are Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK, Standard Chartered and Virgin Money UK.
Together they account for around 75% of lending to the UK real economy. For the first time ring-fenced subgroups of Barclays, HSBC, Lloyds Banking Group and NatWest Group will also be assessed on a standalone basis.
Results will be published in the summer of 2023 and should any of the banks fail they will be required to increase their capital buffers.
